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“The USAREUR Field Assistance Team, which was organized jointly by the United States Army in Europe and our European Branch last December, has demonstrated, in this instance, its effectiveness in assisting the Army Command in Europe in the solution of significant problems and improvement of management controls over property. Its accomplishment should be recognized, in our opinion as an excellent example how both our agencies through cooperative efforts are able to save Government funds and perform a real service to the Congress, management, and the public."

A few examples of the accounting systems projects of UFAT in which the European Branch has participated follow :

Supply depot accounting system: In early 1956 UFAT developed a new cost accounting system for use in Army supply depots in Europe. Numerous problems were encountered in fitting the system to needs of management in programing and budgeting as well as in providing required cost data for reports to the Department of the Army and higher levels. These and other problems were solved and the refined system was first tried out at the Rhine Engineer Depot in Germany and then at the Nancy Ordnance Depot in France. Results were better than expected. Headquarters USAREUR Communications Zone anticipates the installation of the depot cost accounting system in all European depots in the near future.

Army Command Management System : Subsequent to the drafting of the depot cost-accounting system UFAT expanded its program to include assistance in developing the Army Command management system, which correlates budgeting and programing with cost accounting, for implementation in the European theater. Although the Army Command management system has not been implemented completely, it is anticipated that it will modernize to a great extent the Army's financial operations. In the property area it will give depot commanders for the first time accurate information as to how much money is being spent to perform their major operations and where they can reduce operating costs and still carry out their mission adequately.

Screening property in excess and disposal channels: In the Branch audit of the Quartermaster supply operations in Europe a weakness was noted in the system of keeping track of what stock was on hand in disposal channels. The Army's procedures provided that as soon as supplies were placed in disposal yards accountability by quantity and cost for each stock item was dropped. The hand-posted records for keeping track of stock in disposal channels were found to be inadequate. This weakness in the disposal records was studied by UFAT, and it recommended specific punched-card accounting procedures for keeping track of stock in property-disposal channels. The system recommended by the team was put into effect by the Army in January 1957. Now, the Army Supply Control agencies before placing orders for supplies on depots in the United States screen their records of stock held by property disposal officers to determine if stocks on hand in disposal areas could be used to satisfy their requirements.

Air Force.-In any organization as large as the United States Air Forces in Europe (USAFE) there will be problems of various magn ude in property accounting and related controls. This has been true, and the European Branch has assisted the Air Force to the extent possible in solving some of its major problems in the property area.

The following brief statements summarize a few of the projects which have been undertaken in cooperation with the Air Force.

Reduction in paperwork in accounting for low-cost items: In 1956 a joint study of the processes of accounting for low-cost supplies at several airbases was undertaken. The results of the study showed that by stocking more low-cost items in the retail outlet stores at airbases that greater economies and efficiencies could be achieved without losing control over the stock. The recommendation was accepted recently by the Department of the Air Force.

Frequency and degree of price changes in inventories : In cooperation with both the Army and Air Force, the European Branch undertook the study of inventory pricing at various depots and other installations. The study revealed that many man-hours were expended in making insignificant price changes in the inventory records. The group recommended that policies and procedures be revised by limiting changes in inventory prices to significant amounts where the impact of the changes justify the effort required to effect the changes. Some parts of this recommendation have been effected on a worldwide basis, and other facets are being considered by the services at the Washington level.

Simplification in accounting for equipment of Air Force units : In European Branch examinations of Air Force activities it was found that all items, regardless of value, on equipment lists for operating units were in actual practice classified as nonexpendable. As a result certain controls exercised over high dollar value and critical equipment were used in controlling relatively inexpensive items, such as flashlights, salt and pepper shakers, and screwdrivers. The Air Force and the European Branch made a joint study of the problem and recommended that all items having a unit value of $10 or less be classified as expendable and dropped from equipment listings which would exempt these lowvalue items from the rigid controls normally exercised over high-value equipment. The recommendation, with certain minor exceptions, was put into effect by all major air commands in April 1957.

Each of the above-mentioned studies are expected to result in more efficient and economical operations in accounting for and controlling Air Force property. There are many additional areas that require study before improvements can be instituted. The Air Force and the European Branch systems staff are cognizant of many of these areas and are actively engaged in isolating the weaknesses so that improvements can be effected.

PARTICIPATION IN MANAGEMENT CONFERENCES

The Army and Air Force in Europe have conducted several conferences dealing with various phases of their operations to assist in promoting more effective and efficient operations through the exchange of ideas by participants. These conferences also provide operating officials at various locations with current information on recent changes in policies and operating procedures.

During the last 2 years the Director of the Branch and his staff have had the opportunity to address several of these meetings. The Branch participants have given brief explanatory lectures on the organization, responsibilities, and procedures of the General Accounting Office. In 1957 several speeches were given at Army property disposal conferences. At these conferences Branch officials have pointed out certain weaknesses in past disposal procedures which had been noted in audit and investigations.

Several conferences of Army and Air Force audit groups have also been held. The GAO spakers at these conferences have stressed that with properly organized, adequately staffed, and effectively conducted internal audits the GAO is able to concentrate on evaluating the overall effectiveness of the financial and related operations of the agencies or activities under examination.

The GAO participation in conferences has been received enthusiastically by operating officials, and the Comptroller General feels that this form of assistance is a necessary contribution to the promotion of economy and efficiency in Government.

Mr. Blair. The 1949 act applied to property accounting only whereas the 1950 act wasn't restricted to property but has application across the board. Under section 205 (b):

The Comptroller General after considering the needs and requirements of the executive agencies, shall prescribe principles and standards of accounting for property, cooperate with the Administrator and with the executive agencies in the development of property accounting systems, and approve such systems when deemed to be adequate and in conformity with prescribed principles and standards * * *

Mr. POLAND. And should report noncompliance, too? Mr. BLAIR. That is correct. That responsibility of the Comptroller General is assumed by the Washington office on the basis of reviews made in the field. In that connection, I have a summary report on the activities of the auditing policy staff in Washington. They point out that one of the projects they have is the issuance of accounting principles memoranda which will serve as a basic guideline for property accounting systems. The purpose of the project is to study problems in property accounting and prepare a series of accounting principles memoranda on specific subjects. These memoranda are distributed to the executive agencies for their guidance and the first one will serve as a basic guideline with additional memoranda to cover more specifically the accounting principles established for various classifications and use of property. Additional consideration will be given to special subjects, such as depreciation, inventory pricing, intragovernmental transfer, means of presenting property acquisitions and dispositions in on cost-based budgets.

Mr. POLAND. Excuse me, Mr. Blair, but I was personally a little confused by the two sections. Finally, after reading it a number of times, I came to the conclusion that the Administrative Services Act 205 (b) relates specifically to accounting for property and under that section the Comptroller General has the duty to prescribe principles, to approve the system, and to report on noncompliance. The other section, 112 (b) of the Budget and Accounting Act, concern a central accounting system and might run way beyond property.

Mr. BLAIR. That is correct.

Mr. POLAND. Its function there is cooperation and guidance rather than prescribing and policing ?

Mr. BLAIR. That is correct. Again, in line with the recommendations of prior subcommittees, it was urged that we attempt to get the agencies to initiate this action. We would cooperate with them and that is what we are doing. For instance, it was not until 2 years ago that the Office sent us an accounting systems man, Mr. Mallory Read. I am pleased to report he did an outstanding job and received a meritorious service award and $300 cash. We were also very

fortunate in having Mr. Wootton to replace him in that area.

Just to give you an example of the work that Mr. Read did, we conducted an examination of the Quartermaster property disposal procedures. During the course of that examination, we found the Quartermaster in a buying and selling position. Ordinarily, until we started this other system, we would have issued a report on that matter of the type that I referred to as a critical type of report and call on the agency to correct the situation. However, we went ahead and issued the report but referred that problem to a team called UFAT. That stands for United States Army (Europe) field assistance team and is composed of represntatives from our office, the Comptroller's Office in the Army and the G-4 people. The General Accounting Office and the Army moved forward to study the problems involved in screening this property to preclude, to the maximum extent possible, the military from being in a buy-and-sell position.

In the course of the examination, the men found requisitions for items which were also recorded in the Property Disposal Office in the excess account in the amount of, as I recall, $229,000. Those requisitions were cancelled. As a result a system was developed jointly by our office and the Army which provided a mechanized procedure for screening requisitions against items that had been declared excess. They tried the system in the Quartermaster Corps and some $1,200,000 of property was recovered.

General McNamara, who is now the Quartermaster General, endorsed this project. He applied it across the several technical services here in Europe after a period of 4 or 5 months of this new screening procedure and some $15 million in property was returned to supply channels.

Mr. POLAND. How much?

Mr. BLAIR. $15 million, I think is the total. Then we sent a report back home on this and got joint action by General Accounting Office and the military back there. It is now a worldwide regulation. I am particularly proud of it because working cooperatively in a period of 6 months we were able to get corrective action taken in this particular area. To me it would seem that we can accomplish so much more by working with the military in that light rarther than coming out with a critical report and putting them, as you might say, in a defensive position. When their own people work with us and admit their errors and work to correct them, we can come up with results such as this. We did it within a period of 6 months.

Mr. FASCELL. In this one case you are talking about, did I understand you to say that you returned back to the supply system $15.6 million?

Mr. BLAIR. I say “we,” since it was a joint effort by the military and the General Accounting Office.

Mr. FASCELL. As a result of this joint effort ?
Mr. BLAIR. That is right.

Mr. Fascell. That much property was put back in the supply system?

Mr. Blair. That is right. This was worked out by Mr. Read and represented a case where we worked in an attempt to generate sufficient interest on the part of the military to change their own system. That is just one of many changes that were brought about in Europe.

Mr. FASCELL. Is this the type of joint effort that you are working on now with respect to a self-service supply center?

Mr. BLAIR. We have not initiated active work in that area. We did develop data for you in the sense that your staff expressed an interest in this particular area. We called upon the military to supply us such information as they had on this area. We accumulated the information for such action as you care to take.

Mr. FASCELL. We appreciate your getting this information for us dealing with the problem of self-service supply centers. As a result of gathering up this thing, has anything shown up which would indicate that the General Accounting Office ought to be interested in doing something?

Mr. BLAIR. I have not reviewed that writeup. We have not attempted to evaluate it. There has not been time.

Mr. FASCELL. I wondered if there was any inventory problem or accounting problem in dealing with the operation of those retail stores. That is the basic reason we wanted the data, but we have not had the time to review it either. I think before we leave here somebody from this office ought to tell us whether or not, as a result of gathering this information, there is a basis for further inquiry either with respect to maintaining the inventory or accounting system that is used, whether it is efficient or not. I notice that somebody is going to talk about inventory control, accounting systems, safeguarding, and so forth. That is in Germany!

Mr. BLAIR. That is Europeanwide. In other words, we had information from the Air Force and the Army that applies to their stores in operation at installations only in Germany, Morocco, France, and the United Kingdom.

Mr. FASCELL. You have not had a chance then to evaluate this report to determine whether, even on a preliminary basis, something might be done?

Mr. ROSENBERGER. I might say that in our writeup there are 41 different locations in the Air Force.

Mr. FASCELL. That is exhibit 1 ?

Mr. ROSENBERGER. Yes, sir. You will also notice from our exhibits that it does not involve a great inventory. There is roughly $10 million in inventory.

Mr. FASCELL. That is a lot of inventory, comparatively speaking.

Mr. ROSENBERGER. When you are talking about Chateauroux with $300 million, no.

Mr. FASCELL. It is a question of priority. You may not be able to get around to this thing 5 years from now, but the question is whether or not the administrative problem exists.

Mr. ROSENBERGER. That is right.

Mr. BLAIR. To illustrate, they had a reported inventory at Nouasseur as of a recent period of $147 million. Our test sampling indicated that they were about 60 percent accurate. Allowing for this, they have an inventory down there of $300 million. It shows the type of error that continually creeps into the supply operation. Then we are faced with the problems where we have to give the high money area priority. That is a lot of money, but we have to decide whether we are going to do a $300 million job or $10 million job.

Mr. FASCELL. The answer is obvious.

Mr. POLAND. With respect to Chateauroux and Nouasseur with the new program of doing away with the stockpile and using them merely as a reserve area for an emergency supply basis, is that not going radically to change your property and inventory accounting systems?

Mr. BLAIR. That is correct. It is going to have an effect on our staffing for fiscal year 1959. It will reduce the requests for manpower. If the military plans go through for changing its supply concept, we will not have the need for 64 authorized positions since, at the moment, the supply area is our big area.

Mr. POLAND. Are you going to be able to get the inventories in those places on an even keel before they change them over from a depot to an emergency supply basis?

Mr. ROSENBERGER. We certainly hope to but in the case of Nouasseur, I think we got some actions started very promptly. Within 10 days after completion of our field work, they started to take action. That is, instead of continuing their shipping and cutting shipping orders and transferring millions of dollars of material to the disposal yards they backed up and have accepted our recommendations to take a location survey to find out what they do have.

Mr. POLAND. The new system will change the line items they carry? Mr. ROSENBERGER. It will ultimately.

Mr. POLAND. It will be a big problem getting the excess of current line items out to bases, or wherever they have to send them, or readjust their items to the new items.

Mr. ROSENBERGER. Let me see if I understand you correctly. One of our biggest recommendations, outside of the location of inventory, was not to dispose of these items by sale or to ship them back to the United States when you have need of them right in this area. For

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